People v. Whipple, Docket No. 155561

• Decision Date: 15 November 1993
• Docket Number: Docket No. 155561
• Citation: 202 Mich.App. 428,509 N.W.2d 837
• Parties: PEOPLE of the State of Michigan, Plaintiff-Appellant, v. Kenneth WHIPPLE, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 837

509 N.W.2d 837

202 Mich.App. 428

PEOPLE of the State of Michigan, Plaintiff-Appellant, v. Kenneth WHIPPLE, Defendant-Appellee.

Docket No. 155561.

Court of Appeals of Michigan.

Submitted Oct. 14, 1993, at Marquette.

Decided Nov. 15, 1993, at 9:20 a.m.

Released for Publication Jan. 27, 1994.

Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., James J. Gregart, Pros. Atty., and Michael H. Dzialowski, Asst. Pros. Atty., for the People.

James D. Hills, Kalamazoo, for defendant-appellee.

Before SAWYER, P.J., and RICHARD ALLEN GRIFFIN and PAJTAS, ^* JJ.

RICHARD ALLEN GRIFFIN, Judge.

The people appeal by leave granted an order of the Kalamazoo Circuit Court affirming an order of the Eighth District Court dismissing a charge against defendant of fraudulent retention or use of building contract funds, M.C.L. § 570.152; M.S.A. § 26.332. We reverse and reinstate the charge. In doing so, we hold that a reasonable inference of appropriation arises from the payment of construction funds to a contractor and the subsequent failure of the contractor to pay laborers, subcontractors, materialmen, or others entitled to payment.

I

This case arises out of a building contract entered into by James Laure and Abode Management for an addition to Laure's residence. Laure negotiated the contract with defendant, who acted in his capacity as sole proprietor of Abode. ¹ The terms of the contract required that Laure pay defendant a total price of $35,437, with an initial payment of $14,000 due on the date the contract was signed. On August 14, 1989, defendant received a check from Laure for the initial $14,000. After the framing of the addition began, Laure paid defendant an additional $10,000. Thereafter, defendant was paid $1,487.50 to cover the costs of changes in the original construction plans.

Defendant's work on the addition ceased on November 11, 1989. Although the foundation had been finished, the above-ground work remained uncompleted. Eventually, Laure hired defendant's project manager to complete the addition.

Defendant was subsequently charged with fraudulent retention or use of building contract funds in violation of M.C.L. § 570.151 et seq.; M.S.A. § 26.331 et seq. Testimony at the preliminary examination established that Laure paid defendant $25,487.50 pursuant to the contract. Further, the prosecution presented evidence that defendant failed to pay subcontractors who worked on the construction project. Defendant offered no explanation for what he did with the $25,487.50 or why he did not pay the subcontractors. In the words of defendant's brief:

The prosecuting attorney presented only evidence that some money was paid to Mr. Whipple and that some people were not paid. The prosecuting attorney admitted that the people had not presented any evidence of what Mr. Whipple did with the money.

At the conclusion of the preliminary examination, the district judge concluded that defendant had been paid and that "there's no question in this case that he [defendant] did not pay some contractors." However, the district court refused to bind over defendant for the fraudulent retention or use of building contract funds. ² The district court found that the evidence was insufficient to establish probable cause with respect to the "appropriation" element of the crime.

On appeal by the people, the circuit court affirmed. The circuit court agreed with the district court that the prosecutor failed to present any evidence that defendant either retained or used the funds for some purpose other than to pay for the labor performed and the materials furnished in the construction. In essence, the lower courts held that it was necessary for the prosecution to introduce evidence regarding "what the defendant did with the money" before appropriation could be inferred. We disagree and reverse.

II

The district court must bind over a defendant if the evidence presented at the preliminary examination establishes that a felony has been committed and there is probable cause to believe that the defendant committed the crime. M.C.L. § 766.13; M.S.A. § 28.931; People v. Hill, 433 Mich. 464, 469, 446 N.W.2d 140 (1989). We review for abuse of discretion a district court's decision to bind over a defendant. People v. Thomas, 438 Mich. 448, 452, 475 N.W.2d 288 (1991). Therefore, in assessing the circuit court's decision to affirm the decision of the district court, we must determine whether the district court abused its discretion in concluding that there was not probable cause to believe defendant committed the charged offense. People v. Neal, 201 Mich.App. 650, 654, 506 N.W.2d 618 (1993); People v. Fiedler, 194 Mich.App. 682, 692-693, 487 N.W.2d 831 (1992). At the preliminary examination, the prosecutor is not required to prove each element of the crime beyond a reasonable doubt. Circumstantial evidence and reasonable inferences arising from the evidence are sufficient to support the bindover of the defendant if such evidence establishes probable cause. People v. Woods, 200 Mich.App. 283, 288, 504 N.W.2d 24 (1993).

III

The Michigan Builders' Trust Fund Act (MBTFA), M.C.L. § 570.151 et seq.; M.S.A. § 26.331 et seq., provides for both a civil and a criminal remedy. Weathervane Window, Inc. v. White Lake Construction Co., 192 Mich.App. 316, 325, 480 N.W.2d 337 (1991); James Lumber Co., Inc. v. J. & S. Construction, Inc., 107 Mich.App. 793, 795, 309 N.W.2d 925 (1981). The purpose of the act "is to create a trust fund for the benefit of materialmen and others under private construction contracts." Id. A contractor who is paid under a construction contract holds such funds as a trustee. People v. Miller, 78 Mich.App. 336, 340, 259 N.W.2d 877 (1977).

Section 2 of the MBTFA imposes criminal penalties for the following breach of trust:

Any contractor or subcontractor engaged in the building construction business, who, with intent to defraud, shall retain or use the proceeds or any part therefor, of any payment made to him, for any other purpose than to first pay laborers, subcontractors and materialmen, engaged by him to perform labor or furnish material for the specific improvement, shall be guilty of felony in appropriating such funds to his own use while any amount for which he may be liable or become liable under the terms of his contract for such labor or material remains unpaid.... [M.C.L. § 570.152; M.S.A. § 26.332.]

Further, § 3 specifies that "appropriation" of construction funds by the contractor-trustee is evidence of intent to defraud:

The appropriation by a contractor, or any subcontractor, of any moneys paid to him for building operations before the payment by him of all moneys due or so to become due laborers, subcontractors, materialmen or others entitled to payment, shall be evidence of intent to defraud. [M.C.L. § 570.153; M.S.A. § 26.333.]

Because the MBTFA is a remedial statute, we construe it liberally for the advancement of the remedy. Weathervane Window, Inc., supra; Miller, supra 78 Mich.App. at 343, 259 N.W.2d 877. Although "appropriation" is not specifically defined in the MBTFA, we have applied the term in a related factual context.

In People v. Miller, supra, bank records showed that a contractor deposited a check for the down payment on a building contract into his overdrawn general checking account. Id. 78 Mich.App. at 341, 259 N.W.2d 877. The next day the contractor's account was again overdrawn. Id. Subsequently, the contractor failed to pay the laborers and materialmen necessary to complete the construction project. In Miller, we concluded that such evidence was sufficient to withstand the defendant's motion for a directed verdict. In doing so, we noted the historical context of this depression-era statute and articulated the following statutory purpose:

In light of this history, it is clear that the design of the act is to prevent contractors from juggling funds between unrelated projects. By imposing a trust as to monies paid the contractor, the statute ensures that funds for a particular project will be used for that project alone. [Id. 78 Mich.App. at 342, 259 N.W.2d 877.]

Other jurisdictions with similar statutes have concluded that a diversion of funds by a contractor is established on facts similar to those of the present case. See Blanton v. Commonwealth, 562 S.W.2d 90, 92-93 (Ky.App.1978); Overstreet v. Commonwealth, 193 Va. 104, 108-109, 67 S.E.2d 875 (1951). Contra State v. Weems, 595 So.2d 358, 360-361 (La.App.1992); Lingold v. State, 162 Ga.App. 486, 487, 292 S.E.2d 193 (1982). ³

In Overstreet, supra, the Supreme Court of Appeals of Virginia applied a substantially similar statute to a factual situation that is identical to that of the present case. Like the MBTFA, the Virginia statute makes it a crime for any contractor or subcontractor who with intent to defraud retains or uses any construction funds for any purpose other than to pay persons performing labor or furnishing materials for a construction project. The Virginia act specifies that a contractor's use of such proceeds before paying subcontractors is prima facie evidence of an intent to defraud. In Overstreet, the evidence showed that the contractor received a check for payment of materials involved in a home improvement...